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Executives

Greg Dooley - Investor Relations

Robert J. Keegan - Chairman of the Board, President, Chief Executive Officer

W. Mark Schmitz - Executive Vice President, Chief Financial Officer

Darren R. Wells - Senior Vice President - Finance and Strategy

Analysts

Himanshu Patel - J.P. Morgan

Rod Lache - Deutsche Bank

Saul Ludwig - KeyBanc

Kirk Ludtke - CRT Capital Group

John Murphy - Merrill Lynch

Albert T. Kabili - Goldman Sachs

Analyst for Jonathan Steinmetz - Morgan Stanley

The Goodyear Tire & Rubber Company (GT) Q4 2007 Earnings Call February 14, 2008 10:00 AM ET

Operator

Good morning. My name is Carrie and I will be your conference operator today. At this time, I would like to welcome everyone to the Goodyear fourth quarter 2007 conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Greg Dooley, Investor Relations. Mr. Dooley, you may begin your conference.

Greg Dooley

Thank you, Carrie. Good morning, everyone and thank you for joining us for Goodyear's fourth quarter 2007 results review and strategy update. Joining me on the call are Bob Keegan, Chairman and CEO; Mark Schmitz, Executive Vice President and CFO; and Darren Wells, Senior Vice President of Finance and Strategy. The webcast of this morning’s discussion and the supporting slide presentation are available now on our website, investor.goodyear.com.

We filed our form 10-K this morning. This morning’s discussion will be available for replay after 3:00 p.m. Eastern Time today by dialing 706-634-4556, or on our website at investor.goodyear.com.

Before we get started, I need to remind everyone that our discussion this morning may contain certain forward-looking statements based on current expectations and assumptions that are subject to risks and uncertainties that can cause actual results to differ materially. These risks and uncertainties are outlined in Goodyear's filings with the SEC and in the news release we issued this morning. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Thanks again for joining us today. Now I’ll turn the discussion over to Bob Keegan.

Robert J. Keegan

Well, thank you, Greg and good morning, everyone. I’d like to start today with our perspective on the current economic slowdown. Then Mark Smitz and I will comment on the quarter and provide a progress report on our strategic growth initiatives.

Although the economic environment remains uncertain, we are confident that Goodyear is well-positioned to deal with the uncertainty and we are far better positioned than in our recent past. Why do I conclude this? First, the company’s product, brand, and customer mix has become considerably richer. Given this richer mix, we are more focused than the premium segments of the market, which of course had to have relatively inelastic pricing dynamics.

Our decisions to exit 8 million units of the wholesale private label business in North America and to be more selective in our approach to the global OE business have positioned the company with much less exposure to the most price sensitive segments of the tire market.

Second, our balance sheet has improved dramatically, driven by execution against our capital structure improvement plan, which incidentally was put together in 2003. Our total debt and legacy obligations, which peaked at over $12 billion in 2006, are expected to fall to about half that in 2008, given our announced debt repayments and our funding of VEBA. It’s important to note that we have cash on hand to fund both our announced debt repayments and the VEBA trust.

Third, we’ve also made dramatic improvements in our fixed cost structure. Since 2004, Goodyear has reduced global capacity by more than 25 million units and closed six tire manufacturing plants. Now certainly we are engaged in contingency planning relative to economic conditions. However, the improvements we’ve made in our go-to-market model, our balance sheet, and our cost structure give us confidence that we are well-positioned to progress through the current uncertain economic environment.

We are now over-confident we are continuing to reduce our cost structure and build upon our innovative marketing capabilities, which we’ve been demonstrating in the marketplace.

As we look at our financial highlights for full year -- and I’ll emphasize here full year in 2007 -- successful execution against our strategies drove strong performance. Our revenue from continuing operations grew 5% to a record $19.6 billion, despite challenging industry conditions in several key geographies and our strategic decision to exit low-margin businesses, including the wholesale segment of the private label tire business in North America.

Revenue per tire grew 8%, driven by a richer product, brand, and customer mix, as well as our pricing actions. And I would just comment here that when we think of mix, don’t just think of product mix -- brand and customer mix have been equally important for us as we’ve driven that revenue per tire figure as we’ve improved our margins.

Gross margin was 19% versus 16.1% in 2006, a significant improvement even after allowing for the strike impact.

Total segment operating income grew 24% when adjusted for the strike impact and reached 6.4% of sales compared with 5.4% the prior year. Year-over-year improvements were generated by all five of our strategic business units.

Our businesses in Eastern Europe, Latin America, and Asia-Pacific continued their very strong performance in 2007. In aggregate, those businesses’ sales increased 15%, segment operating income rose 20%, and return on sales reach 15%.

The strategic decision we made five years ago to invest significantly in growing our business in these emerging markets continues to pay significant dividends today and will do so in the future.

When adjusted for the strike impact, North American tire reported its highest full-year segment operating income since the year 2000. We made this progress despite difficult recession-like conditions in the North American commercial truck market throughout the year.

Unexpectedly robust demand for our outstanding premium products has resulted in supply constraints in many of our markets. As a direct result, we are accelerating planned investments to increase our capacity to produce high value-added tires and thereby increase our margins.

We made significant progress against our four-point cost savings plan and remain on track to achieve our stated financial goals, and Mark and I will both have more to say on those in a few minutes.

So overall, 2000 [sic] was a year of strong execution and strong market and financial progress for Goodyear.

From my perspective, our progress in 2007 was a function of outstanding execution against our five strategic business platforms, and you’ll recall here that the five platforms are strong top line growth capability, a step change improvement in our cost structure, a stronger balance sheet, a focus on our core tire businesses, and a focus on speed.

Two weeks ago, we got together with more than 2,000 of our largest North American customers in Dallas for our annual dealer conference. It was a watershed meeting from every perspective. The dealers have experienced first-hand our transformation as a company over these past five years. They now clearly believe in our strategy, our direction, and our people, and more importantly, perhaps, they believe that together we can be a more powerful force in this industry.

Now don’t take my word for it -- I would encourage you to talk to our customers. Ask them how they feel about the tire industry and how they feel about Goodyear.

Our dealers share our confidence in the future. They are of course closely monitoring sales activity but they aren’t overly concerned about an economic slowdown. Rather, like us at Goodyear, they are focused on the attractive market opportunities that are currently available and are working to improve their businesses for the inevitable return of strong economic conditions in the future.

I frankly have never heard so many positive comments about our people, about our leadership, from our customers at a conference.

I will tell you what I told the dealers -- I told them I was more energized than ever about the future of our business and our industry. I left Dallas with tremendous confidence in our dealers and I think they left Dallas with that same level of confidence in us. I simply say here that for Rich Kramer and his North American tire team, this represents a huge win.

Let’s take a closer look at each of the five business platforms.

Our capability to generate top line growth is underpinned by our product leadership strategy, which is firmly focused on increasing our mix of high value-added tires and of course, as a result, increasing our profit margins.

We raised the bar again in 2007 with the introduction of several impactful new products to our portfolio, including the Goodyear Eagle F1 Asymmetric and the Goodyear Eagle F1 All-season. These innovative new products have been very well-received in the marketplace and have won prestigious awards.

The European designed and produced F1 Asymmetric was chosen number one in the all-important European independent magazine testing by Evo and Autocar, while the U.S. produced F1 All-season was recently named the overall winner in independent testing done by the respected retailer, The Tire Rack.

In what has now become an energizing annual event, we launched several exciting new products in Dallas at our conference. We announced the Goodyear Assurance, a high value-added mid-tier product joining the very successful Assurance family of products. This new tire targets the middle-class, everyday driver who values an outstanding tire at an affordable price and I would note here that this market segment represents high volume potential for our dealers and for Goodyear.

We also announced the Goodyear Eagle GT, a high performance tire featuring Goodyear's tread-lock technology, which provides all season traction as well as a solid foundation for cornering and an attractive price point. The target for this product is younger performance drivers who our research indicates want a tire with styling, handling, and all season capability.

Our commercial tire customers demand tires and services that they can depend on and that will allow them to reduce vehicle down time. So in response to their needs, we introduced our revolutionary, self-sealing Duraseal commercial tire technology on a broader scale for use in a variety of applications.

No other tire manufacturer offers this technology.

We also unveiled ArmorMax technology, which adds strength and toughness to commercial tires that are subject to challenging performance demands.

All of these products will be supported by Fleet HQ, a new, innovative, 24-hour, seven-day operation that services fleets nationwide.

So the best new product engine in our industry just got better.

We continue to prove that we can successfully differentiate our new products in the minds of end users. Our marketing capabilities are not limited to launching new products. During 2008, we will continue to leverage the success of our “get there” advertising campaign. The “get there” campaign, which tested in the top 5% of respected market researcher Millward Brown’s advertising effectiveness testing history, was a major contributor to the Goodyear brand growing 2X the market rate in North America during 2007. And that rate of growth in a year challenged by strike recovery was very impressive.

As with all our investments, we are intensely focused on getting the maximum returns from our advertising spend. At the Beijing Olympics, we will use the proven vehicle of aerial coverage brought to you by the Goodyear blimp that has successfully raised the visibility and value of our investment in past Olympics with a combination of high profile ads and in-program product messages linked to our aerial coverage.

Our innovative new products, targeted advertising campaigns, and overall improved marketing capabilities have enabled us to continue to grow our share in key targeted market segments across the globe and to achieve significant price mix improvements, which more than offset raw material cost increases, and certainly that was the case during 2007.

As we have previously discussed, to complement these marketing initiatives, Goodyear is now focusing its capital investments to meet two objectives. First, to increase our capacity to produce high value-added tires by 40% by 2012. Today, based upon the strong demand for our new products and our progress in executing in our plants, in 2007 we increased our HVA capacity by 15%. I think you’d agree that’s strong performance. Based on that, we are adjusting that objective to an increase of 50%, so we are moving the 40% up to 50% by 2012.

And our second objective is to increase our capacity in low cost countries by 33%, with a target of having low cost capacity at 15% of our global total again by 2012. In 2007, we improved low cost capacity to 40% of our total.

In addition, we are continuing to evaluate potential new factory sites in Eastern Europe and Asia, although I have no specific announcements regarding new facilities this morning.

We continue to evaluate our level of planned capital investments for 2008 given the uncertain economic environment. We continue to identify available investments that will provide economic returns well in excess of our cost of capital. Now, we believe our evaluation will result in 2008 capital investments above 2007 dollar levels.

Higher levels of investment can be funded using cash generated in our business so that our balance sheet metrics, particularly our net debt, will continue to improve. And we will provide additional information on our investment plans as the year progresses on these calls.

We made significant progress against our four-point cost savings plan with the initiatives we implemented during 2007. We signed a milestone contract with the United Steelworkers, including the proposed VEBA trust, which will result in step change improvement in the cost structure of our North American tire business.

We ceased tire production in two North American plants, Tyler, Texas and Valleyfield, Quebec, which reduced high cost capacity by approximately 16 million units and results in annualized cost savings of approximately $90 million.

We announced changes to our salary benefit plans resulting in annual savings of $80 million to $90 million in our legacy costs. Now these actions, along with many others, have contributed to our progress against the cost-saving goal that we previously shared with you.

Through 2007, two years into our plan, we’ve achieved gross cost savings of over $1 billion towards our target of $1.8 billion to $2 billion by the end of 2009, and we are clearly on track to achieve these goals.

I would like to acknowledge our Goodyear associates for their collective efforts to find new and innovative ways to reduce our cost structure. I’d simply say here they have fully embraced the idea of continuous improvement, and Mark will go into some additional detail on cost initiatives in a few minutes.

Turning now to the balance sheet, our equity offering in the sale of Engineered Products marked the completion of the capital structure improvement plan that again we developed in 2003. We have clearly made significant progress in de-levering our balance sheet.

During the fourth quarter, we completed the conversion of nearly $350 million of 4% convertible notes into equity, and we ended 2007 with a total debt balance that was $2.5 billion lower than where we started the year -- $2.5 billion.

Of course, our focus on improving our balance sheet continues into 2008. On February 1st, we announced our intention to repay $650 million of senior secured notes in early March.

Now we view this as a milestone event as this is not only our highest cost debt but it is the last remaining debt from the company’s near-distressed period back in 2003, 2004. And as a result, annualized interest expense savings from this debt repayment will total $75 million to $80 million.

Now in addition to debt repayments, we’ve reduced our legacy obligations. As I already commented, the aggregation of our debt and legacy obligations which totaled more than $12 billion in 2006, now stands at less than $8 billion and should be less than $6 billion at year-end 2008. And this reduction in leverage is a terrific accomplishment and after reflecting these actions, we will have achieved our next stage metric for leverage of 2.5X debt-to-EBITDA.

So we’ll face the current economic slowdown with a considerably healthier balance sheet and believe me, that feels very good to the team here at Goodyear.

During 2007, we made significant changes that enable us to increase our focus on our core businesses -- consumer and commercial tires. We completed the sale of the Engineered Products business at the end of last July, raising about $1.4 billion in net proceeds. And as you all recognize, our timing could not have been better.

We completed the exit of certain segments of the private label tire business in North America and this action concentrates our production capacity on our more profitable product line. In December, we completed the sale of substantially all of the assets of North American Tire’s tire and wheel assembly operation, eliminating a non-core business with low margins and limited growth prospects for Goodyear.

We continue to drive initiatives that will accelerate the pace of change at Goodyear. The accelerating pace at which we now launch high impact new tires to the market to address key market segments is an obvious example.

Another recent example -- during the fourth quarter, we announced that effective in the first quarter 2008, we are creating a new regional business unit, Europe, Middle East, and Africa, enabling faster decision-making and frankly opening up further cost efficiency opportunities for our previously separate E.U. and Eastern Europe, Middle East, and Africa regions.

Given the actions we’ve taken over the past several years, we are now able to quickly adapt to the changing dynamics of our industry and we look forward to changes that our markets will present.

Execution against these strategic business platforms means that Goodyear is on a clear path toward achieving our next stage metrics, and remember that we are targeting metrics here of an 8% segment operating income return on sales globally, a 5% segment operating income return on sales in North America, and as referenced earlier, 2.5X debt to EBITDA.

Now I’d like to turn the call over to Mark to discuss our fourth quarter financial results in more detail. Mark.

W. Mark Schmitz

Thank you, Bob. As Bob said earlier, execution of our strategies led to strong results in 2007. My comments today will be focused on fourth quarter results. Turning first to the income statement, revenue grew by more than 4% year over year, adjusted for the strike impact in 2006. The improvement was driven by continuation of price and mix improvements and favorable foreign currency translation. Revenue per tire grew 10% in the fourth quarter.

These positive impacts were partially offset by a 2% decline in unit volume as a result of the decision to exit certain segments of the private label business in North America, as well as continuation of weak conditions in several key markets, including weak winter tire sales in Europe.

Gross margin was 19.4% for the quarter versus 11.3% in last year’s strike-affected quarter. This margin performance was achieved through price and mix improvements in excess of raw material cost, driven by our focus on high value-added tires, growth in our high margin international operations, and cost savings actions consistent with our four point cost savings plan.

Selling, administrative, and general costs grew by $47 million year over year, primarily driven by unfavorable foreign currency translation which increased SAG by $45 million. SAG as a percent of sales declined by 60 basis points in the fourth quarter to 4.3% of sales. For the full year, SAG was up as a percent of sales by 0.5%, due primarily to some unique items, such as curtailment charges related to the salary benefit plan changes. We also had higher advertising and incentive compensation expenses this year.

Segment operating income amounted to $313 million in the fourth quarter, compared to a strike-adjusted $227 million, an increase of 38%. All of our business segments except E.U. increased their operating income year over year in quarter four, and the E.U. held even versus last year, despite the weakness in this year’s winter tire markets.

All five segments were up in operating income on a full year basis.

Income from continuing operations was $61 million or $0.27 per share in the fourth quarter, versus a loss of $310 million in the prior year, largely a result of the strike and rationalization charges. Reported income from continuing operations included $26 million, or $0.11 per share, in rationalization and accelerated depreciation charges; losses on certain asset sales of approximately $19 million, or $0.08 a share; and reduced tax expenses of $11 million, or $0.04 per share, due to a tax law change that allows us to utilize existing tax losses against a newly enacted state gross margin tax.

We also incurred additional financing fees of $17 million, or $0.07 per share, related to tour convertible exchange offer.

Net income, including discontinued operations, was $52 million, or $0.23 per share, and this includes a $9 million, or $0.04 per share true-up on the quarter three gain on the sale of Engineered Products.

Several items that impacted our results in the fourth quarter this year and last year are listed on the last page of our earnings release and in the appendix to the slide presentation.

Slide 16 shows the primary factors that drove the year-over-year increase of almost $400 million in our segment operating income in the fourth quarter. Before I discuss the business drivers of this earnings improvement, I would highlight the fact that the biggest change versus last year is the $313 million impact of the 2006 steelworkers strike. For our North American operations, this makes it a difficult comp but we clearly feel the favorable trends we have seen in the North American business this year continued in the fourth quarter.

In addition to the non-recurrence of the strike impact, we saw a continuation of price and mix improvements in excess of raw material cost totaling $111 million. For the full year, price and mix improvements in excess of raw material cost increases totaled $444 million.

Foreign currency translation, primarily in Latin America and Europe, yielded $45 million of improvement during the fourth quarter.

We also realized more than $175 million of savings in the quarter from our four-point cost savings plan. The savings came primarily from successful execution against continuous improvement initiatives, high cost footprint reductions, and low cost sourcing.

These positive factors were partially offset by 1.2 million unit sales decline, which reduce segment operating income by $39 million.

We also continued to experience manufacturing inefficiencies in North American Tire due to the change of our plans to high value-added production capacity, the implementation of seven-day operations in some of our facilities, training of our newer $13 per hour associates, and inefficiencies related to the shut-down of tire production at our Tyler, Texas facility.

As we indicated in the third quarter conference call, we are pleased with our progress in cost savings. Furthermore, a large portion of the structural cost savings we’re targeting remains ahead of us.

On slide 17, we showed the annualized run-rate savings achieved in the fourth quarter compared to what we expect to achieve once the structural cost savings are fully realized. In quarter four 2007, we realized the full run-rate savings from our salary benefits restructuring.

On high-cost footprint reductions, we expect to achieve the full plan savings of more than $150 million compared to the approximately $85 million annual rate reflected in quarter four. This will include the impact of savings related to the shut-down of tire production at Tyler, Texas, which was completed in December.

Our steelworkers productivity savings remain on track as we hire and train new $13 per hour labor. We expect to realize $140 million of run-rate savings by 2009 from steelworkers productivity, compared with a run-rate of approximately $65 million in quarter four. And we expect to achieve full run-rate savings of $110 million related to the VEBA for steelworkers retirees, which is expected to begin once the legal process is complete, anticipated by the end of quarter two, 2008.

Now turning to the balance sheet, our cash balance at the end of the year was $3.5 billion, which is about $400 million less than year-end 2006. This reflects the proceeds from the sale of Engineered Products and our equity offering but also significant debt repayments during the year. Total debt at December 31, 2007 was $4.7 billion compared to $7.2 billion at the end of 2006 and $5.1 billion at the end of September.

During the fourth quarter, we completed a convertible exchange offer, converting notes into equity, which resulted in a debt reduction of nearly $350 million. At year-end, shareholders’ equity was up by over $1 billion from September 30th and by $3.6 billion from a year ago.

As a reminder, we will be repaying a total of $750 million worth of debt in March, which includes the redemption of $650 million of secured notes, as well as a $100 million maturity, bringing our total debt balance to under $4 billion.

As Bob mentioned, pro forma for these actions, we have achieved our next stage metric for leverage, which is 2.5 times debt-to-EBITDA. We also have $1 billion of cash ear-marked to fund the VEBA.

Turning to cash flow for the year, operating cash flow provided by continuing operations was $92 million or $353 million less than last year, primarily reflecting the rebuilding of working capital, both receivables and inventories, as business recovered from the strike affected quarter four of last year. Accounts payable were also up substantially from a year ago, reflecting recovery to more normal levels of business.

Our global pension contributions totaled $719 million in 2007 and we expect to contribute in the range of $350 million to $400 million to our global pension plans in 2008.

As discussed earlier, we made additional progress against our four-point cost savings plan during the fourth quarter. We were targeting gross cost savings of $1.8 billion to $2 billion by the end of 2009. To date, two years into the four-year plan, we’ve achieved well over $1 billion of gross cost savings.

In continuous improvement, we’ve achieved savings of more than $700 million to date. This includes savings from lean and six sigma initiatives and product reformulation, including raw material substitution. This also includes approximately $30 million of steelworkers productivity savings, primarily due to our new $13 per hour associates.

In footprint reduction, we’ve achieved savings of approximately $75 million to date. This includes additional savings from the shut-down of tire production at our Valleyfield, Quebec plant. This does not yet reflect any savings from the shut-down of tire production in our Tyler, Texas facility, which was completed in December.

In low-cost country sourcing, we’ve achieved savings of nearly $100 million to date. The savings in this category relate to work we are doing with third-party suppliers in low cost regions. We continue to focus on qualifying additional third-party suppliers, a process which does take some time.

In selling, administrative, and general, we’ve achieved savings of more than $175 million to date. This includes savings related to the salary benefit plan changes we announced earlier this year.

Given the progress we’ve made to date in each of the four areas, we are confident that we will achieve our targeted $1.8 billion to $2 billion of gross cost savings by the end of 2009.

Now I’d like to discuss the results of each of our five business segments. Overall, while challenges remain, North American Tire’s operating performance in 2007 shows that our previously stated strategies are effective and they are being executed as planned. North American Tire’s segment operating income for the fourth quarter was $40 million, which was a significant improvement over the strike-impacted 2006 fourth quarter. The year-over-year comparisons are of course clouded by the strike. Nonetheless, North American Tire’s results showed continued progress against our strategies of reducing structural cost, exiting non-strategic businesses, and driving innovation as a catalyst to improve our brand, product, and channel mix.

Our success in driving our strategy is evidenced by share gains we’ve achieved in our branded consumer and commercial replacement businesses in 2007. In fact, our branded replacement market share exceeded the level prior to the 2006 strike.

2007 was not a robust year for the North American tire industry, although the consumer replacement market did show modest growth from 2006 levels. Due to distortions caused by the 2006 strike, it’s more relevant to look at 2007 industry growth versus 2005 levels. Consumer replacement industry fines were flat versus 2005. Consumer OE and commercial replacement were below 2005 and commercial OE industry volumes were more than 40% below 2005.

It is I think very significant that our mix-up strategy, paired with structural cost reductions, allowed us to stay on our strategic path and resulted in operating performance which was significantly better than the last time we encountered such weak markets.

Compared to 2005, in quarter four ’07, North American Tire sold roughly 4 million, or 17% fewer tires. However, at the same time, premium Goodyear branded products were up 20% versus 2005.

Our commercial truck business is another excellent example of the right strategy, executed very well during weak market conditions. The commercial truck business is a very cyclical business and 2007 was definitely one of those down years for the industry. For the year versus 2006, the replacement industry declined 3% and the OE industry declined 34%. Despite the weak industry, our business performed very well. This performance was achieved by providing a full value proposition to our customers, one of high quality branded products and high quality service in our targeted segments. The result is higher revenue per tire, higher market share, and higher earnings, all coming at the low point of the industry cycle.

Overall for North American Tire, our price increases, coupled with our richer mix, have had a favorable impact on our operating performance in a weak market. We’ve recently raised prices in our consumer replacement business by up to 7% effective February 1st, due to the continued escalation of prices in many of our key raw materials.

With regards to manufacturing costs in quarter four ’07, you’ll appreciate there are many moving pieces, including the 2006 strike that make the year-over-year comparisons difficult. To mention the most impactful of these, in 2007 we had the shut-down of tire production at Tyler and Valleyfield, the salary benefit plan changes, the new steelworkers agreement, including $13 per hour labor and conversion to seven-day operations, and investments and monetization of plants in high value-added product capacity.

There are clearly pluses and minuses but to simplify, we estimate the normalized year-over-year comparison is a net $15 million favorable manufacturing cost variance in quarter four ’07. The favorable $15 million reflects approximately $55 million of structural cost savings, offset partially by approximately $40 million of cost increases, which are necessary as part of implementing our HBA capacity, footprint reduction, and other core strategies.

This includes the costs of unabsorbed overhead ahead of the Tyler shutdown. They also include the costs of absorbing $13 per hour workers, transition to seven-day operations, and adding to high value-added tire production.

As Bob mentioned earlier, we have already increased our capacity for high value-added products by 15% worldwide and some of that is in North American Tire. And most importantly, we expect $10 to $20 per tire of increased margin for high value-added tires.

As we look towards 2008, the $55 million of fourth quarter structural cost savings are expected to increase as we realize more of our initiatives, particularly once the VEBA trust is implemented.

Some of the cost increases will remain as we continue to transition our plants to seven-day operations and convert to high value-added production, but all these costs are essential to implementing the more profitable mix and structural cost reductions, strategies that are accretive to North American Tire’s bottom line.

Our manufacturing operations are undergoing dramatic change as we migrate to a footprint that will produce the right mix of high value-added products via a truly advantaged supply chain while delivering the structural savings to our bottom line.

Overall, with respect to North American Tire, we remain confident that we are on track to achieve our next stage metrics. Our confidence comes from our belief that we are executing against the right strategy and as Bob mentioned, this belief was strongly confirmed at our recent dealer conference in Dallas.

With respect to Europe, as Bob mentioned earlier, effective February 1st, we are combining our two European businesses into one strategic business unit. The new region of Europe, Middle East, and Africa, EMEA, will be Goodyear's largest in terms of geography and second-largest after North America in terms of annual sales revenue. Annual combined sales revenue for the two regions in 2007 was $7.2 billion.

We believe this new structure will allow us to accelerate growth and maximize earnings through simplicity, speed, and an intense focus on our customers and markets. The markets in Europe are getting closer and closer, providing us with a great opportunity to centralize core functions, such as supply chain and purchasing, while still allowing us to tailor our marketing programs for specific markets as needed.

In addition, we intend to continue focusing and even accelerate our activities in high growth markets, such as Eastern Europe. We’ll begin reporting the new segment in the first quarter and will adjust all prior segment reporting to reflect this combination.

Our Europe Union business had solid top line performance during the fourth quarter, as sales grew 5% despite an 11% decline in unit sales, due to a combination of favorable price mix and foreign currency translation.

The weakness in the European consumer replacement market continued during the fourth quarter. Although the initial winter tire selling season was relatively good and in line with expectations, subsequently mild weather in Western Europe resulted in lower-than-expected sales.

As a result, the winter tire replacement market experienced a more than 20% sales decline year-over-year during the quarter. This in part reflects the new regulations in Germany in 2006 that underpinned a more robust demand for consumer replacement tires that year.

The commercial OE market in Europe remains strong and we continue to leverage our available commercial tire capacity in North America to provide additional supply to our European business.

Volume declines were offset by favorable foreign currency translation and price and mix improvements, which were driven by the success of our new products. Our new European consumer products continued to be very well-received in the marketplace. Our premium Goodyear and Dunlop brands gained share during the fourth quarter. However, we continue to be challenged by premium product supply constraints.

As we’ve indicated in the past, the investments we are making to expand high value-added capacity will allow us to overcome these supply limitations over time.

Segment operating income was flat versus last year as price and mix improvements and favorable foreign currency translation were offset by volume declines and manufacturing inefficiencies at our two Amiens facilities in France.

I wanted to take a minute to comment on our recent announcement regarding planned reductions at our two facilities in Amiens, France. As we have done in other situations, we have made our goals to these manufacturing facilities.

In high cost manufacturing locations, we prefer to work with our associates to reduce cost while making investments to upgrade equipment for the production of high value-added tires. In the event we are unable to agree with our unionized associates, we must take actions to protect our business and create a sustainable cost structure. That is what we are going to do in Amiens.

Our businesses in Eastern Europe, Latin America, and Asia-Pacific continue to show outstanding results. For Eastern Europe, Middle East, and Africa, revenue and segment operating income grew 20% and 34% respectively. We experienced strengthening markets throughout the region during the fourth quarter.

We continued our strong performance in developing markets, such as Russia, Poland, and the Middle East.

Eastern Europe’s strong sales results were driven by a 9% increase in replacement volumes and the combination of price and mix improvements, which more than offset higher raw material costs.

Given the strong industry growth in Eastern Europe and particularly robust demand for our premium products, we continue to be challenged by high value-added supply constraints. However, we are implementing our investment strategy to increase high value-added capacity.

Latin America had another strong quarter, as revenue and segment operating income grew 24% and 44% respectively. The strength in the original equipment markets continued in the fourth quarter and stronger than expected economies led to improvements in the replacement markets.

Although we continue to see robust demand for our premium products, our replacement volumes continue to be held back due to supply constraints for high value-added products. Again, we are investing to increase our HBA capacity to address these constraints.

Sales and segment operating income growth were driven by improvements in price and mix and favorable foreign currency translation as a result of the continued strength of the Brazilian Real.

Asia-Pacific also had a strong quarter as revenue and segment operating income grew 16% and 50% respectively. We continue to see strong growth in developing markets, such as China and India. We continue to execute our strategy focused on premium products in the Australian market. Our unit volume grew 2% versus the prior year, with growth limited by supply issues in Thailand due to the fire earlier in the year. Full production has resumed in Thailand, which is expected to result in improved supply.

Asia’s revenue and operating income increases were driven by volume growth, favorable foreign currency translation, and price and mix improvements.

The improvements in operating income were partially offset by higher conversion and SAG costs as we continued to invest in market development throughout the region.

Overall, we are pleased with the company’s performance in the fourth quarter and throughout 2007. We are better positioned than in the recent past to deal with economic uncertainty, both from a balance sheet and a structural cost standpoint. We remain vigilant in the face of economic uncertainty and will take action as necessary to remain on our strategic path.

Now I’d like to turn the call back over to Bob.

Robert J. Keegan

Well, thank you, Mark and before we open the call up to your questions, I’d like to just take a few minutes to discuss our outlook for the industry in 2008. You’ll note that we still see growth potential in our markets with the exception of the consumer OE business in North America, despite weak economic conditions. And this in part reflects the already depressed levels of unit growth that we’ve been seeing in 2006 and 2007.

To be specific, in North America for the full year, our forecast for the consumer OE market is down 2% to 4%, which should improve our available product supply for the replacement market, where of course our margins are higher. Our forecast for commercial OE is up 20% to 30%, and then our forecast for both the consumer and the commercial replacement markets is flat to up 2%.

Given that we are combining our European businesses this year, our outlook has been expanded to include the Eastern European countries where we have good data. In Europe for the full year, our forecast for the consumer OE market is up 2% to 4% and up 5% to 10% for the commercial OE market. Our forecast for the consumer replacement market is flat to up 1% and for the commercial replacement market is forecast to be up 1% to 2%.

Now we continue to see quite a lot of uncertainty in raw materials, driven by the volatility of oil and natural rubber prices. Based on our current projections, we expect raw material costs to be up 7% to 9% in 2008 and that follows a 3.5% increase in 2007. And this estimate could obviously change significantly based on changes in the cost of natural rubber or other key raw materials.

As we discussed earlier, we have made significant improvements in our balance sheet, which has resulted in reduced leverage of significantly lower interest expense. For 2008, our interest expense forecast is $350 million to $360 million, compared to $450 million in 2007. And this forecast takes into account the savings from our announced debt repayments and the lower interest rates on our variable rate debt.

Our capital expenditure levels will likely increase going forward as a result of our portfolio of high return investment opportunities, as I said earlier. The pace of our investments will reflect both the macro-economic environment and specific market situations we encounter during 2008.

We will continue to take a disciplined, i.e. demanding of high return, approach to our investments.

For modeling purposes, our tax rate guidance is 25% to 30% of international segment operating income. Our effective tax rate may vary depending on factors such as the release of valuation allowances against deferred tax positions and the mix of foreign earnings among low and high tax rate jurisdictions.

I would like to close with a few summary comments. Our strong execution against our strategies in 2007 led to strong financial performance. Our business platforms position us for profitable future growth with a new product engine that not only remains strong but is improving with time. And this innovation will continue to generate a richer mix and therefore higher margins.

We will continue the focus on high return investments. We remain on track to achieve our stated cost savings targets. We are well-positioned to deal with an economic slowdown and are prepared to take contingency actions as necessary if economic conditions worsen, and we are confident that we can achieve our next stage metrics.

I want to thank you for your interest in our company and I think we’ll now open the call to questions-and-answers.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Himanshu Patel with J.P. Morgan.

Himanshu Patel - J.P. Morgan

I had a couple of questions. Can we first talk about the balance sheet? You guys ended the quarter with $3.5 billion in cash. I guess there’s a $1 billion payment for the VEBA, 750 for debt pay down, that kind of pro forma you’re at 1.7 already and then let’s say you generate a couple-hundred-million of cash next year. You could be back to $2 billion of cash at the end of ’08 and you’ve talked about running the business I think with about $1 billion going forward. Is there a scope here for additional debt pay down and when should we start thinking about that? Is that second half ’08 or more ’09?

Robert J. Keegan

Well, just to -- good morning, by the way. As we said before, our seasonal working capital needs here and somewhat limited access overseas debt requires us to carry more cash than we would otherwise, and I wanted to make those two points.

But I think, Mark, you might want to comment on the situation as we see ourselves going forward. By the way, your comments are right. We said we need about $1 billion in cash on a regular basis to operate the company.

W. Mark Schmitz

And I think the other comment is also right, that we’re always looking at opportunities to pay down debt faster. We’ve got nothing that we are going to commit to right now. There’s enough uncertainty out there that we are happy to have a little bit of a buffer at this point.

Himanshu Patel - J.P. Morgan

Can I jump to slide 16? This is I guess the walk-on on segment operating income. It looks like that number on transitional manufacturing expense was $25 million in the third quarter. It looks like it jumped to $40 million. Was that increase entirely related to the Tyler shutdown, or were there some other issues there? And I guess more broadly, can you give us just some granularity on what that 40 is made up of? How much of it is the temporary cost of hiring $13 an hour labor, how much of it is Tyler, et cetera?

Robert J. Keegan

We’ll have Mark tick it off here. Darren or I may have other comments.

W. Mark Schmitz

I probably can’t give you as much granularity as you’d like to have on that but I will say that it’s more than the inefficiencies related to Tyler. There’s the unabsorbed overhead related to Tyler. There’s also the cost of implementing seven-day operations, cost of training and incorporating our $13 per hour workers. There’s a number of factors in there which really are -- I have to say they are all good things. They are all moving us in the right direction.

To be specific about the Tyler effect, it’s probably around half of that, half of that $40 million.

Himanshu Patel - J.P. Morgan

Okay, so $20 million from Tyler and I imagine the rest of if sort of lingers around for a few more quarters, but is it fair to say that next quarter we should think of the Tyler component going away?

W. Mark Schmitz

No, it won’t go away and it’s really because Tyler, as you know, we closed tire production at the end of quarter four so we basically took those excess costs into our cost of goods sold that will come out as cost of goods sold in quarter one. So it clearly will continue and affect us on a P&L basis in quarter one.

Robert J. Keegan

I think it’s important to note here, I know we are a challenge to look at from a cost standpoint because we see the -- some of the incremental costs that we are incurring right now as very good costs because what they are doing is given our strategy of upgrading mix, in some cases we’ve got higher costs that are simply a reflection of our move to higher mix and we’ve got some inefficiencies as we make dramatic changes in that area but all of it drags with it higher margin and that’s what you’ve been seeing in the results these past several years.

So we may have inefficiencies that we are dealing with short-term but overall, have confidence that the strategy continues to play out here. We’re doing the right thing to drive higher margins.

Himanshu Patel - J.P. Morgan

Two last questions -- first, LIBOR is down 200 bps. How much of your debt is effectively floating net of --

Robert J. Keegan

Well, we’ve got about -- I think -- well, I’ll let Darren answer but I’m going to try to impress him with my knowledge here, but I think our variable is about $2.4 billion.

Darren R. Wells

That is correct.

Himanshu Patel - J.P. Morgan

And are there any swaps or derivative agreements there that would suggest that maybe the floating exposure is not that big in reality, or that is the floating exposure?

Darren R. Wells

I think you’ll see that -- and you’ll see it in the disclosures, we don’t have a lot of derivatives on the books, so I think the important thing to focus on there on the $2.4 billion of floating rate debt is going to be when that debt resets. I can tell you that the -- just as an example, the $1.2 billion second lead term loan has its interest resets generally every six months and it was a deal that was done in April, so you’d expect that to reset in April.

And go through the other debts on the balance sheet the same way -- it’s just important to think about when they reset.

Himanshu Patel - J.P. Morgan

Okay, and then last question, this is a little bit arcane, I apologize, but in your K, I think you guys disclosed the impact on revenue changes from price mix and also on operating income. And if I just back into what those numbers were for North America in the fourth quarter, it looks like on revenues, price mix benefited you by about $87 million. On operating income, it benefited you by about $45 million. That implies a 50% contribution margin on the price mix benefit. That’s down sharply. I mean, it was 86% in Q2, it was 65% in Q3, 52% in Q4 -- am I thinking about this correctly? It sounds like the dollar amount on revenue from price mix is the same but the EBIT contribution is receding. Does that mean more of it is mix and less price?

Robert J. Keegan

Let Mark again respond to this.

W. Mark Schmitz

Well, actually, what I was going to say is that no, it has not -- first of all, it hasn’t declined. I mean, the favorable impact of price and mix has not declined. I think what you are seeing here is in large part kind of the difficulties of that comparable period analysis, quarter four ’06 to quarter four ’07, with quarter four ’06 being adjusted for the strike impact. It just makes it a very difficult analysis to do with precision.

Himanshu Patel - J.P. Morgan

I see, so directionally you guys wouldn’t say that the composition of price mix, it hasn’t tilted more in favor of mix and less in favor of price in recent quarters?

Robert J. Keegan

No, we would not but we would say, you characterized this as an arcane question -- no, I think it’s an important question because we ask ourselves that same question and working through the analytics of it, no, we see nothing to slow down our move in mix. In fact, as I mentioned earlier, relative to our dealer conference, et cetera, we continue to feed that mix but the quarter four analysis, given the strike in ’06, very difficult in North American Tire.

So as we look at other parts of the world and we can look at North American Tire in several different ways, as you would understand, we feel pretty good about the momentum that we have.

Himanshu Patel - J.P. Morgan

I’m going to sneak in one last one, I apologize -- back on slide 16, the --

Robert J. Keegan

Is this number seven, Himanshu?

Himanshu Patel - J.P. Morgan

The estimated inflation, it looks like it’s been -- this is the non-raw mats inflation -- it looks like it’s running $100 million a quarter last couple of quarters. Darren, you’ve kind of suggested that the rate of non-raw mats inflation may be a little bit unsustainably high. Any sort of guide post you can give us for what we should think about those numbers for ’08?

Darren R. Wells

Himanshu, that’s real tough to do. I mean, I think your point is right. We’ve seen in non-raw material price inflation, we’ve seen numbers that across all categories, 4%, upwards of 5%. And 5% is not an inflation rate that we’ve seen generally in the mature markets around the world, which really carried the heaviest weight for us.

So I think clearly there is room for it to go down but I would say even in the fourth quarter, there is still a big spike in energy prices and energy prices are a part of that non-raw material price inflation because we need utilities to run the plants and so forth.

So I think for right now, it’s -- it continues to be above where we would see it long-term. Very hard to get a read for it here going forward, given the effect of energy.

Himanshu Patel - J.P. Morgan

Okay. Thank you, guys.

Operator

Your next question comes from Rod Lache with Deutsche Bank.

Rod Lache - Deutsche Bank

You still have it looks like $735 mm to $1 billion, or $800 million to $1 billion left on this four point plan. Is that something that you would say is kind of half-and-half ’08/09? Can you give us any kind of breakdown on that? And just update us on the timing of the healthcare deal. You had previously quantified the productivity gains and expected benefits from LCCs this year.

Robert J. Keegan

I’d say that while we haven’t changed our objective, $1.8 billion to $2 billion, there would be reason to expect progress to accelerate when you see all the structural savings that we have still ahead of us.

On the second part of your question related to VEBA, nothing has changed. We think that is on track. No reason to doubt that it will be concluded in the second quarter.

And relative to ’08/09 split, you know, that’s very difficult to do. We’ll just say that obviously, Rod, as we said when we announced the plan, $1.8 billion to $2 billion, that our goal would be certainly hit the upper end of that and that’s what we’re attempting to do here.

Operator

(Operator Instructions) Your next question comes from Saul Ludwig with KeyBanc.

Saul Ludwig - KeyBanc

Good morning. This will be a long one question then. It’s two parts -- part A; with regard to the $13 an hour workers, give a little color on how many of them you’ve now had, what kind of turnover rate you are experiencing, and are the training and the negative costs associated with it less than what the positive benefits are? And in 2008, do you expect -- what do you think the number of $13 an hour workers will be, incremental to 2008?

And the second part of the question has to do with your goal of bringing on more supply of HVA tires. In each segment of your business, you talk about having shortages. I wonder if the benefits of having shortages are the exceptionally strong pricing and the relationship of price to raw materials and if you and others are successful in dramatically increasing your supply, what do you think that impact is going to be on the firmness of the pricing?

Robert J. Keegan

Okay. Darren, do you want to take part A?

Darren R. Wells

On part A, Saul -- not a separate question, part A of one question -- so the question on the $13 an hour workers, I think what you would recall from the discussion we had when we announced the union contract is that across the plants that were not scheduled for closure, we had 10,000 or a little bit more steelworkers, and we were expecting 6% to 7% attrition each year.

So that would imply 600 to 700 workers each year leaving for retirement or other reasons. And what you’ve heard from us over the course of our calls is that that number, we’ve actually been a little bit above that number during 2007.

Now in addition to that, there’s been some $13 an hour workers hired to help fill in where overtime might have filled in in the past, which was also part of the savings that we communicated as part of the contract. So I think if anything, we’re ahead of where we thought we would be there.

Your question on the training costs is a good one. I mean, there is an investment in training there and if we think about it, if you think about very short timeframes, you know, for the first couple of months the $13 an hour worker is there, the training cost is in that period. The benefits aren’t really in that period. But once we get past the training period, then the benefits kick in.

And so clearly we view those costs of the training as being very transitional in nature. It exists to some degree but I would say this is a lot of people to hire into North American plants, more than we’ve hired in certainly in recent years. And the investment we’re making in training is going to pay benefits for us as we get the efficiency for those workers.

Robert J. Keegan

If I could maybe take part B, Saul, which was the question around high value-added or premium tires and as we increase supply, how does that match up with demand and are our competitors doing the same thing?

And I would comment here that our belief is that not all high value-added tires are created equally and that’s why you see the emphasis from us on industry-leading new products, on product innovation, on creating marketing capabilities around those new products that our goal would be to have a position as the best in the industry and our ability to do that.

So although supply may be increased -- by the way, these markets, even irrespective of what kind of economic slowdown we have in the U.S. and the impact of that on the rest of the world, this is going to be growing at significant rates and double-digit rates in most of the segments. So the industry will be playing catch-up, if you will, in terms of supply for some point in time. And the same for us, because I think our achievement here has been to create the best new product engine in the industry and we didn’t do that just by bringing out HVA or high value-added product. We did it by bringing out industry leading new premium products.

And so what we are going to focus on is continuing to innovate, continuing to drive our marketing and frankly, continuing to make sure that our cost structure comes down in manufacturing that product. So that would be my response there and that’s what we’re going to be trying to do, and it’s not only strategy but we’re going to try to execute against that.

So not all HVA products are created equally.

Thanks, Saul, for the one question.

Operator

Your next question comes from Kirk Ludtke with CRT Capital Group.

Kirk Ludtke - CRT Capital Group

Good morning. Bob, you mentioned early in the presentation, or you reminded us that mix is attributable to product, brand, and customer. And I’m just wondering -- if you were to look back at the improvement in mix in ’07, could you -- would it be possible -- I know they are inter-related, but would it be possible to rank the three in importance?

Robert J. Keegan

In a really analytic, quantitative sense, it’s probably not possible. But I’ll give you a perspective on it, because your point is exactly the right point -- they are interactive. A part of what we are doing in product interacts with what we are doing in brands and particularly the Goodyear brand here in North America and the Goodyear and Dunlop brand in Europe.

And then our customer mix, we’re going for the people that we think have tremendous capability to grow their business in selling high value-added product and have that capability on their teams in store and in their supply chains.

So they are so inter-related that one of those mix elements alone doesn’t get the job done. We’ve got to have all three but in terms of quantifying the contribution to all three, all three are essential to us. It obviously started with product mix for us and without having the right products and industry leading new products providing characteristics and performance characteristics that meets the needs of the end user, you can’t do the other two effectively.

So in a sense, I’d say the core here is new product and then we build on that, that builds brand, and that builds our attraction to the customers that can really move the product.

W. Mark Schmitz

I’ll just add one thing to that too, Kurt, that you’ve got product, brand, and customer. You can add to that geography. We’re growing faster in those parts of the world where we earn higher margins and the point is, all four of them are positive.

Operator

Your next question comes from John Murphy with Merrill Lynch.

John Murphy - Merrill Lynch

I actually have two quick ones here. First, the margins in North America were lighter than what I was looking for in the quarter and I understand the walk year over year and it’s sort of a difficult walk to make from the quarter we were looking at that was impacted so greatly by the strike. I’m just wondering if you could look sort of sequentially or give us the big swing factors sequentially from the third quarter to the fourth quarter, or even the last two quarters versus the fourth quarter? Because they were particularly strong and fourth quarter was a little bit weaker than we were looking for.

Robert J. Keegan

Okay. John, by the way, I just mentioned here that for us, we were really pleased with the fourth quarter in North America, given what we saw as the tremendous number of moving parts that came into that, but that’s our comment. Mark, your response?

W. Mark Schmitz

Sequentially, of course, quarter four you’ve got holiday shut-downs, which complicate some of the comparisons and certainly add to higher costs. But I think what you also see happening in quarter four and it’s a good thing, is that you see some acceleration of some of these structural cost changes that are -- and high value-added capacity improvements that are going to lead to higher margins, improved mix as we go forward. But as we accelerate our progress on those things that do lead to higher margins, you’ll see the transitional costs which to some extent holds you back on a quarter basis.

We’re not disturbed by it. We’re on track. We’re happy with it but sequentially, that’s what you are seeing, John.

John Murphy - Merrill Lynch

So that should lead us to believe that in the coming quarters, there should be a greater sort of net realization of your cost savings targets?

Robert J. Keegan

Particularly as we get into Q2, 3, and 4 in 2008.

John Murphy - Merrill Lynch

Okay, and then just lastly, you had mentioned something about a $10 to $20 up-tick in profit per tire for HVA or high performance tires versus -- what was the baseline? Was that private label or your average tire? I’m just trying to gauge what you were talking about there.

Darren R. Wells

When we do that comparison, I think we are generally dividing the tire world into two categories. We’ve got low value-added and high value-added. And the low value-added, and there’s not crystal clear definition here but generally low value-added would be the type of tires you see in private label. I mean, that would be a big, big part of what we consider low value-added. And you’re comparing that to a mid- to high-end branded product, which would be high value-added. And the $10 to $20 is something we’ve given as a rule of thumb. Clearly the real range is bigger than that but as you look and model the benefits of what we might get from having, for instance, 15% higher HVA production capacity at the end of ’07 than we had at the end of ’06, we’re using that $10 to $20 per tire as a guideline.

Robert J. Keegan

It’s almost, John, it’s just a spin-off of what Darren has already said, it’s almost an average. You know, we’re trying to give you something that can help you feed your models but as Darren said, in many cases it’s greater than $20 and in some cases, it’s as low as $10 depending on the comparison. So think of it as an average. And our goal obviously over time is to push that number up.

Operator

Your next question comes from Al Kabili with Goldman Sachs.

Albert T. Kabili - Goldman Sachs

Good morning, guys. Just some questions on the pricing. The price increase that you initiated in February in North America, based on what’s sticking, do you feel that you’ve got enough to at least offset the 7% to 9% raw material inflation that we are expecting this year, or do we need some more coming in the pipeline?

Robert J. Keegan

Let me just try to position this as look, if we see 7% to 9%, we’re going to need 3% to 4% of price to totally offset that. That’s without mix. With price, we’re going to need 3% to 4% to offset that. And so that will probably ground you a bit here.

Now, I’d just go back to 2007. We had two increases and Al, you’re talking about the North American -- let’s say the consumer replacement business. We had an increase in April last year up to 4% I think, and then we had another increase in September in the fall that was up to 7%. And we’ve got the current increase that’s up to 8% for February 1, right?

Darren R. Wells

Up to 7%.

Robert J. Keegan

Up to 7 -- they were all up to, up to 7%, up to 8%. Well, from my standpoint, what we are doing here is we’ll take a look at how the market reacts to that because we are always a market back group here. We’ll take a look at how the market reacts to that and move forward.

So I won’t say that the -- I won’t comment on future price increases but I certainly won’t say that there won’t be any other price increases from us. It depends on what we are seeing in raws and other aspects of the market and we’ll digest that and we’ll make the appropriate decisions going forward.

I think, Mark, you had another comment. No? Covered it? Okay.

That’s our response there, Al. I know that’s a part of your question. Do you have another part?

Albert T. Kabili - Goldman Sachs

-- 50-ish percent sticks, which would imply that you could make it even -- I’m just trying to get a sense for how you are feeling about it.

And then B, Europe, haven’t seen any price increase announcements in Europe and wondering, given the headwinds, how you could offset the raw materials in Europe or do we need to see some pricing soon?

Robert J. Keegan

Okay. From a European standpoint, we’ve been talking about Europe on the call for about a year in terms of pricing, because I think it’s been a challenging price market for us in consumer replacement, much less so in truck. It’s maybe been our most challenging geographic area, and consumer replacement continues to be a bit of a challenge.

And what happens in Europe right now is you’ve got what I’ll call fast starter sell-in programs that take place at this time of the year for summer and the pricing usually will clarify coming out of those programs. It might not be totally clear to you and to the general market today but we’ll be clear coming out of those programs.

We expect it to remain somewhat challenging, given the growth rates and the competitive situation.

Albert T. Kabili - Goldman Sachs

Okay, and then question 1-C, if I may, which is dovetailing on an earlier question -- on the transitional and manufacturing expenses of $40 million in the quarter, could you just break out how much was in North America versus the rest of the world, out of that $40 million?

Robert J. Keegan

Mark.

W. Mark Schmitz

I don’t know if I can precisely break it out. I mean, we’ve talked about it being primarily a North American issue and I think that’s where I’d leave it at this point.

Albert T. Kabili - Goldman Sachs

Okay, thank you.

Operator

We have time for one further question. Your last question comes from Jonathan Steinmetz with Morgan Stanley.

Analyst for Jonathan Steinmetz - Morgan Stanley

This is Robbie in for Jonathan. A two-part question again -- where do you see your market share evolving in the Latin American markets going forward? Also, can you talk about Fleet HQ and what you are trying to do with that initiative and your plans for that initiative?

Robert J. Keegan

Let me take the first one in terms of share market in Latin America. We never give guidance on share market. I will tell you this -- I think there’s been a lot of skepticism for frankly the five years I’ve been at this job from a host of people in terms of can you continue to increase your margins and continue to grow in a productive way in Latin America?

Our feeling is that we’ve got significant competitive advantages in Latin America today, and those range from brand to dealer network to cost position. What we are doing currently in Latin America is you’ll see a series of introductions of new products using world-class technology in Latin America, unlike anything that’s been seen before. That will happen in both the consumer area and in the truck area.

So naturally we’re looking for very profitable growth and possibly even expansion into our margins, although the margins in Latin America are very high today. So from our standpoint, we see growth opportunities that are significant in Latin America.

Building on a strong base of capabilities and now really hitting that with new product, which in some cases the consumer market is now ready for in Latin America but five years ago, they wouldn’t have been ready for. But we’re also innovating significantly with new products in truck.

In terms of -- your second question was around Fleet HQ. Fleet HQ, what we’re trying to do there is create in effect a service network. You can think of this as a call center and we thought before about cradle to grave in terms of our retreading capability in servicing fleets throughout North America. Well, you can think of this as even beyond that to a call center manned by our people that is in contact with the drivers, the operators that are out there on the highway and provides them with 24/7 capability in terms of their service needs.

So think of it as a huge customer service network servicing our fleets on highway. As I said, in my comments this morning, our commercial truck people demand tires and services that keep them up and running. They can’t have down time. And so what we are trying to do here is reduce the down time and frankly take away the concerns and the anxiety around that, both for the owner and for the individual driver. So that’s that program. And we’ve got the ability to dispatch help very quickly to people that are having on-the-road problems.

Greg Dooley

That was our last question, so thank you, everyone, for joining us this morning.

Robert J. Keegan

We appreciate your interest in the company and we’re frankly very proud to have delivered another very solid quarter. Thank you very much.

Operator

This concludes today’s conference call. You may now disconnect.

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